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The euro hasn't tumbled, even amid concern that Greece will default on its debt, because the underlying economy across the eurozone continues to improve, according to Chief Investment Officer Haig Bathgate.

A report earlier this week showed that european business levels were at a four-year high, while the eurozone in aggregate continues to export more than it imports. Greece itself has a trade surplus and the relative calm in equity markets, even with the country's debt negotiations going to the wire, shows that investors continue to think Greece will in the end receive more bailout money. There are of course various stages to go through until we reach a final resolution, including getting any deal through the Greek parliament, but since the International Monetary Fund and European Central Bank dictate the rules, they can make allowances if they feel there is a commitment to reach agreement.

Across the Atlantic, the US economy continues to power ahead and that is increasing the chance of monetary policy getting tightened sometime soon. However any rate hike by the Federal Reserve isn't likely to spread to the UK in the immediate future – Britain's recovery is lagging that in the US so don't expect rates to increase here before the end of the year.

Haig, speaking on BBC Radio's Good Morning Scotland, also commented on the trading update at Tesco.

 

ANDREW KERR

Greece and its international creditors remain in deadlock over its debt crisis. Well, our business presenter Graham Stewart is here to look at the implications.

GRAHAM STEWART

Well, Andrew, the Athens government faces default is it fails to make a 1.6billion euro debt repayment to the IMF by Tuesday. I'm joined by our markets guest Haig Bathgate of Turcan Connell. So, Haig, we're hearing reports that there's been a deadlock in the discussions so what happens if Greece doesn't pay up by next Tuesday?

HAIG BATHGATE

Yes, well, it's a, kind of, Punch and Judy show that just sort of rumbles on in traditional Eurozone fashion. There was an initial deadline set for Thursday, which has been passed, they're now going to reconvene and try to make a decision on Saturday and, as you say, this all has to be agreed before the 30th June, which is the date, obviously, that Greece needs to make a payment to the IMF, so it's all got to be done in a fairly short period of time and, you know, it could go wrong and that's why the markets are starting to get a little bit jittery. I think the key thing to note here, though, is that obviously the politicians are going to try and appeal to the general electorate in the press, as they always do, so we're probably seeing an extreme view, so we'd still hope and certainly the markets are not volatile to the extent that they think that Greece is going to exit at the moment.

GRAHAM STEWART

I mean how much flexibility is there, will it judged to be a default straightaway?

HAIG BATHGATE

Yes, I mean there are various shades of grey with these things and I think the other thing as well is it's not just a case of making an agreement on Saturday, this has got to be approved through the Greek parliament, there are various things that need to happen as well on the European side to get this pushed through, so there's a lot of hurdles that still need to be overcome before we get to it, but ultimately the IMF and ECB make the rules so they can accommodate if they really want to and if they get a sense that there is a commitment on both sides to resolve matters.

GRAHAM STEWART

If you look at the currency markets the euro has been fairly static of late, hasn't it, why has it been holding up so well given what's been happening in Greece?

HAIG BATHGATE

Yes, I mean it's been slightly weaker but, as you say, probably not as much as you would expect, I mean I think that's a general sentiment from the markets, that they do expect the position to be resolved, but the other thing about Europe is that the underlying economy is performing probably better than a lot of people expect, the various economic indicators coming through in Europe are actually quite positive and also Europe in aggregate actually exports a lot more than it imports, so there's net demand created for the currency on an ongoing basis as well.

GRAHAM STEWART

Some promising data coming from the United States, consumer spending there has risen and there's talk of a rates rise soon, are we likely to see pressure for a rates rise here before the end of the year as well?

HAIG BATHGATE

Not before the end of the year. The UK tends to follow the US in a, kind of, eight or nine month lagged basis effectively. The position in the US, we think, is much, much stronger than is the case in the UK, due to the way that they dealt with the credit crisis nearly six years ago now, so we're certainly expecting to see interest rate increases in the US before the UK, I would say.

GRAHAM STEWART

Now, in the next few minutes we're expecting a trading update from the beleaguered supermarket giant, Tesco, what are analysts expecting?

HAIG BATHGATE

Yes, yes, how the mighty have fallen. We're expecting, again, I would say, probably a fall in overall sales - again, this has to be taken against the backdrop of falling food prices, but generally Tesco is getting squeezed in a major way by the discounters, the discounters are effectively moving further up the valley chain with higher value products now and obviously all this is against a backdrop of a consumer who has less disposable income they needed a number of years ago, so it's a pretty difficult backdrop.

GRAHAM STEWART

Well, we've not long to wait, that update just coming out in the next few minutes. Haig Bathgate of Turcan Connell, thanks for joining us this morning.

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